Search for yields buoys stricken African issuers

African sovereign issuance is way down from its peak, but recent eurobonds have been oversubscribed as investors search for yield.

Investors looking for a cautionary tale about being caught up in a good story would do well to visit Mozambique. In September 2013, the country joined in a continent-wide sovereign debt spree. Issuers, from Nigeria in the west to Kenya in the east and Rwanda in the middle tapped eurobond markets that were desperate for yield and in search of strong growth stories in the wake of the financial crisis.

Four years on, with commodity prices subdued and the country’s governance and macroeconomic management under serious scrutiny, Mozambique is in a bad way. The International Monetary Fund stepped in with a bailout package, but the revelation last year that the government had guaranteed US$1.4bn in “secret” loans from other banks caused the IMF to suspend its programme of financial assistance.